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VMware backs out of planned Virtustream cloud business

VMware backs out of planned Virtustream cloud business

Meanwhile, Dell-EMC union comes one step closer to reality

Just months after announcing plans to merge its cloud business with EMC’s Virtustream, VMware said today that it is backing out of the deal.

VMware informed investors via a regulatory filing that it will no longer participate in the formation of a Virtustream Cloud Services Business unit, but did not say why.

The move comes as EMC announced over the weekend that is moving forward with plans to be acquired by Dell for $67 billion, having not received any better offers since the record deal was revealed in October.

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The history between VMware and Virtustream has been murky.

EMC, which owns a majority stake in VMware, announced in May that it was buying Virtustream for $1.2 billion. Virtustream is a niche IaaS cloud computing provider that specializes in helping customers migrate complex workloads, such as customized SAP programs, to the cloud.

VMware, meanwhile, has its own cloud strategy, the latest iteration of which is named vCloudAir. It’s also a public IaaS cloud computing service that offers virtual machines, storage, databases and disaster recovery as a service, among others features. VMware’s cloud offering has struggled to gain major share in the IaaS public cloud market dominated by Amazon Web Services, Microsoft Azure, Google Cloud Platform and IBM.

When EMC bought Virtustream there was talk of overlap within the EMC Federation between Virtustream and VMware, but EMC officials played that down. After Dell made its leveraged buyout offer for EMC, and in turn VMware, news came out that VMware’s cloud assets would go under the brand of Virtustream.

Having now backed out of the Virtuestream deal, VMware will continue to offer vCloud Air products and partner with vendors in its vCloud Air Network. However, it won't be a stranger to Virtustream.

“VMware and Virtustream will continue to partner closely as part of the EMC Federation,” VMware spokesperson Michael Thacker wrote in an email.

The demise of this deal is not a complete surprise. Rumors of turmoil have been circulating for weeks amid investor discontent with the idea. Some investors are wondering why the two companies were linked in the first place.


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